Yeah, We Already Knew
December 19th, 2016 | Work to Wealth
Wednesday’s FOMC’s decision to raise rates was telegraphed well in advance by market interest rates. Since the conclusion of the election, market interest rates have risen substantially. This left the FOMC no choice but to raise the federal funds rate .25% to a .50%-.75% range or they would risk being “behind” the curve. Official market expectations for a rate increase prior to the meeting were just under a 100% probability.
The FOMC statement forecasts the possibility of three rate increases heading into 2017 as compared to just one rate increase forecasted for 2017 after the September meeting. As a reminder, just one year ago, the FOMC forecasted four rate increases in 2016. Wednesday’s was the first and only one of this year.
From the December statement, the FOMC says “labor markets have continued to strengthen” and growth has been moderate. They stated “job gains have been solid in recent months” and that “household spending is rising moderately but business fixed investment has remained soft”. While this bodes well for the consumer, the corresponding strength in business activity is needed if GDP growth is ever going to meet long term expectations.
Now that FOMC decisions have come to an end for this year, we look forward to 2017 and the possibility of more normalization in interest rates. The prospect of the FOMC raising rates three times next year would begin to steer things in the right direction. However, the uncertainty of whether they will keep up with their own forecasts will be closely scrutinized. The more likely result is that the market will continue to lead the way, leaving the FOMC no choice but to play catch up. As the prospects for higher inflation and economic growth improve, the market may react by increasing rates irregardless of FOMC action or inaction.
At DeCesare Retirement Specialists we prioritize safety of capital above growth opportunity during volatile times. We continue to employ counter risk measures alongside a prudent growth strategy in order to protect capital in what continues to present as a challenging economic and investment environment.
Should you have any questions and/or concerns about your accounts with us or outside of our management, please call me at 856.235.3830 or email me at Steve@DeCesareRetirement.com.